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THE IRS AND THE FAIR DEBT COLLECTION PRACTICES ACTWhat Rules Must the Agency Follow in Collecting Taxes?Part of January 2017 Pilla Talks Taxes Special Report

As you read my other article* on the IRS’s intended use of private collection agencies (PCAs), you saw the clear limitations within the Fair Debt Collection Practices Act (FDCPA) on the use of unfair, abusive and misleading collection actions by PCAs. You might have asked yourself whether the IRS is bound by the terms of the FDCPA. After all, the IRS is the most powerful and ubiquitous collection agency on the planet.

Certainly one would think that the FDCPA’s reasonable and logical limitations on abusive practices should apply to the IRS. Well, they don’t. The IRS—indeed any federal agency collecting it own debts—is exempt from the provisions of FDCPA. Instead, those agencies are bound by their own applicable statutes and regulations.

In the case of the IRS, the Internal Revenue Code dictates how the IRS may go about collecting delinquent taxes. The specific steps and governing rules are set forth at length in my book, How to Get Tax Amnesty. That said, the IRS Restructuring and Reform Act of 1998 added code §6304, which is entitled, “Fair Tax Collection Practices.” That section lifts some of the provisions of the FDCPA and incorporates them directly into the Internal Revenue Code. As such, the limitations and prohibitions expressed in code §6304 are binding on all IRS employees in the act of collecting taxes.

Let’s examine them.

Communications With a Taxpayer

Section 6304(a) patterns FDCPA §1692d to some extent. Code §6304(a) provides that, “Without the prior consent of the taxpayer given directly to the Secretary or the express permission of a court of competent jurisdiction, the Secretary may not communicate with a taxpayer” in the act of collecting an unpaid tax as follows:

1. At any unusual time or place, or a time or place known, or which should be known, to be inconvenient to the taxpayer. In the absence of knowledge to the contrary, the IRS shall assume that the convenient time for communicating with a taxpayer is after 8 a.m. and before 9 p.m., local time at the taxpayer’s location;

2. If the IRS knows the taxpayer is represented by counsel authorized to practice before the IRS and has knowledge of, or can readily ascertain such person’s name and address, unless counsel fails to respond within a reasonable period of time to a communication from the IRS, or unless counsel consents to direct communication with the taxpayer; or

3. At the taxpayer’s place of employment if the IRS knows or has reason to know that the taxpayer’s employer prohibits the taxpayer from receiving communications at work.

Prohibition on Harassment and Abuse

Internal Revenue Code §6304(b) patterns FDCPA §1692e. Code §6304 provides that the IRS “may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of any unpaid tax.” The non-exclusive list of prohibited actions is as follows:

1. The use or threat of the use of violence or other criminal means to harm the physical person, reputation, or property of any person;

2. The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader;

3. Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with the intent to annoy, abuse, or harass any person at the called number; and

4. Placing telephone calls without meaningful disclosure of the caller’s identity, as expressly required under the FDCPA, 1692c. See my discussion in the previous article*, under the subheading, “Rules for communicating with third parties to locate a debtor.” Section 7602(c) of the tax code addresses contacts with third parties. I discuss that below.

IRS Contacts with Third Parties

The FDCPA essentially prohibits contacts with third parties by PCAs, other than to attempt to locate a debtor. However, the IRS has no such limitations. It is allowed to contact third parties not only to locate a debtor, but to collect the tax. For example, third party contacts regularly come in the form of wage and bank levies, but also in the form of summonses for information, documents and records. The IRS routinely summonses banks, investment houses, brokerage firms, mortgage companies, etc., to obtain third party information in both civil audits and criminal investigations.

Other than the general prohibition against disclosing confidential information under §6103, the only other proviso regarding third party contacts is found in code §7602(c)(1). This section prohibits the IRS from contacting any third party in connection with “the determination or collection of any tax” unless the IRS first provides “reasonable notice in advance to the taxpayer that contacts with persons other than the taxpayer may be made.” This notice is provided in the form of language included in the agency’s collection notices, stating that it may contact third parties in connection with the case.

Section 7602(c)(2) states that the IRS “shall periodically provide to a taxpayer a record of persons contacted. . .by the Secretary with respect to the determination or collection of the tax liability of such taxpayer. Such record shall also be provided upon request of the taxpayer.”

While there is an affirmative duty in the statute to provide a list to the taxpayer of who the IRS contacted, I have never seen the IRS provide such a list unless on was requested. Therefore, the only real way to know whether contacted anybody, and whom it may have contacted, is to request such a list under the authority of this statute and the Freedom of Information Act.

Civil Action for Violations of Law

The FDCPA allows a person victimized by violations of any provision of the Act to sue a PCA for such violation. No such relief is available under the FDCPA regarding violations of law by the IRS. However, Internal Revenue Code §7433 allows taxpayers to sue the IRS if “any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation promulgated under this title” while in the act of collecting taxes.

The relief available under the tax code is substantially greater than that which is available under the FDCPA. Code §7433(b) provides that if an IRS employee is found liable for violating any provision of the tax code or regulations in the act of collecting taxes, the victim may recover the lesser of:

1. $1,000,000 in the case of any deliberate reckless or intentional violation of the tax law,

2. $100,000 in the case of mere negligence leading to a violation of the tax law, or

3. The sum of: a) the actual, direct economic damages sustained by the taxpayer as a proximate result of the reckless or intentional or negligent actions of the IRS employee, and, b) the costs of the action.

Chapter 12 of my Taxpayer’s Defense Manual discusses code §7433 at length, giving examples of lawsuits to recover damages for unlawful collection actions by IRS employees. That chapter also discusses the requirement to engage in and exhaust all administrative remedies before pursuing the judicial remedy, and the need to mitigate damages or risk a reduction of the award to the extent of any failure to do so.

Conclusion

While it is true that the FDCPA does not apply to or bind the IRS in any way, the Internal Revenue Code certainly does. The individual code sections mentioned above, along with the plethora of legal authority set forth in How to Get Tax Amnestyand the Taxpayers’ Defense Manual, provide ample to both prevent and cure IRS abuse in the collection process.

Moreover, with the addition of the Taxpayer Bill of Rights as a statement of statutory rights under the code and the affirmative duty of the IRS Commissioner to ensure that IRS employees are familiar with and act in accordance with those rights, we have substantial leverage against IRS abuse.

The Taxpayer Bill of Rights

For further reference and review, I again present the Taxpayer Bill of Rights as set forth in Internal Revenue Code §7803(a)(3).

1. The right to be informed,

2. The right to quality service,

3. The right to pay no more than the correct amount of tax,

4. The right to challenge the position of the IRS and be heard,

5. The right to appeal a decision of the IRS in an independent forum,

6. The right to finality,

7. The right to privacy,

8. The right to confidentiality,

9. The right to retain representation, and

10. The right to a fair and just tax system. .

* Refers to first article in the full Special Report issue of Pilla Talks Taxes January 2017.

Article taken from January 2016 Special Report issue of "Pilla Talks Taxes."